VENTURA COUNTY BUSINESS | VENTURA COUNTY REVIEW

Pharmanex Reclaims Product to Try Direct Sales

It's not every day that a manufacturer announces with great optimism the imminent removal of an entire product line from 30,000 stores.

But when Simi Valley-based Pharmanex made public recently its plans to withdraw 38 nutritional supplement products from Longs drugstores, Safeway and other leading retailers nationwide, it was seen not as a disaster but as a critical step toward increasing revenue.

Instead of selling the natural health products through mass-market retailers, as the company has done since its founding in 1994, Pharmanex plans to switch to a one-on-one, direct sales approach, beginning in mid-January.

The decision comes a month after the company was purchased by Nu Skin Enterprises, a billion-dollar-a-year skin-care and nutritional products operation based in Provo, Utah. Nu Skin has achieved success through a global network of 500,000 direct-sales distributors, and Pharmanex products will be sold as part of the Nu Skin selection.

"Retailers, to date, have all asked, 'Why are you doing this?' " Pharmanex President Bill McGlashan said. "No one has ever pulled out of the mass market like this. But our belief is that we'll do more sales in a month through direct sales than we do in a year in the mass market."

Pharmanex reported sales of about $12 million for the first three quarters of 1998. McGlashan said sales figures would be significantly higher if Pharmanex products could be distinguished more readily from other nutritional merchandise on the market. Direct sales, he said, could accomplish that.

"If you've gone into a chain drugstore, like Walgreens and Longs, it's totally bewildering to the average consumer," McGlashan said. "Our problem has been, how do we communicate with our customers. We've tried television, magazines. One-on-one, I can show you the toxicology, etc.--direct selling allows for a very significant amount of information to flow."

Pharmanex operates a raw material extraction facility, a research and development facility and a clinical and pharmacology center in China. The company also has cultivation areas in China and Chile.

Products include CordyMax, a supplement made from a Tibetan mushroom that is said to build stamina and vitality. Another product, the dietary supplement Cholestin, is advertised as promoting a healthy cholesterol level.

McGlashan said the story of the company and its products is a difficult one to tell on a retail display case, and that Pharmanex would benefit by distributors sharing the information with customers. This strategy, he said, could have been accomplished without the Nu Skin distributor network, but it would have been a much more difficult transition.

"There have been a million start-up direct-selling companies that have gone by the wayside," he said. "Nu Skin has invested literally $100 million into this mode."

"Previously, our strategy has been to license products or technology, but we just felt like this was an opportunity to have a pipeline in a tremendous product," said Corey Lindley, chief financial officer of Nu Skin. "We've found in Pharmanex a diamond in the rough, in regard to a product not reaching its potential through its distribution channels."

Through its affiliation with Nu Skin, which has distributors in 27 countries, Pharmanex will gain access to international markets for the first time. The product is expected to be available in Asian markets by mid-1999 and to expand from there.

Before the launch of the direct sales campaign, Pharmanex also plans to expand its Internet presence, making more products available on its existing Web site.

"We are moving to an [electronic] commerce environment, where we'll do a lot of promotion on the Internet and allow customers to buy products that way," Lindley said. "With the explosion of Internet sales, we don't think anybody will be left out."